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Honda Recalls Minivans and SUVs

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Honda Motor Co. (HMC - Analyst Report) plans to recall 807,000 units of several minivans and sports utility vehicles (SUVs) due to a problem with their ignition mechanism. It would include 318,000 units of Honda Odyssey minivans and 259,000 units of Honda Pilot SUVs from the 2003 and 2004 model years, as well as 230,000 units of Acura MDX SUVs from 2003–2006 model years. All of these vehicles have automatic transmissions.

Honda revealed that the key can be removed out of the ignition when the vehicle is not in parking position as the mechanism in the ignition becomes worn out. Normally, it is not possible to pull the key out of the ignition unless the gear selector in an automatic transmission vehicle is in parking, preventing it from rolling away. As a result, the defect increases the risk of vehicles to roll away even if the key is removed.

According to the National Highway Traffic Safety Administration, the problem in the vehicles led to 16 crashes and 2 injuries. Honda will start recalling the vehicles in February next year by sending mail notifications to owners. The owners will be required to take the vehicles to their nearest dealers for repair.

Automotive safety recalls were brought into focus by media after Toyota Motors’ (TM - Analyst Report) announcement of the largest-ever global recall of 3.8 million vehicles in September 2009, triggered by a high-speed crash that killed 4 members of a family.

Later on, a string of recalls has led Toyota to face numerous personal injury and wrongful death lawsuits in federal courts. The Transportation Department of U.S. had also imposed a fine of $48.4 million on the company due to late recall of millions of defective vehicles.

A couple of months back, Honda announced recall of 489,000 units of its popular sports utility vehicle, CR-V, in order to fix the faulty power window switches. Among them, 268,655 units were recalled in the U.S.

The company also expanded its May recall to fix defective power steering hose by including 572,000 units of Accord V6 midsize sedan in the U.S. The vehicles belong to 2003-2007 model years. The May recall for power steering hoses involved 56,881 units of 2007–2008 Acura TL sedans in North America.

From the beginning of 2011 till date, Honda’s largest recall included 1.5 million cars in the U.S. due to a problem with the transmission system. The recall included CR-V (model year 2007-2010), Elements (2005-08) and Accords with 4-cylinder engines (2004-10).

Honda, a Zacks #5 Rank (Strong Sell), reported a 36.1% rise in profits to ¥82.23 billion ($1.06 billion) or ¥45.63 (59 cents) per share in the second quarter of its fiscal 2013 from ¥60.43 billion or ¥33.53 per share in the year-ago quarter. However, earnings per share in the quarter lagged the Zacks Consensus Estimate by 33 cents.

Consolidated net sales and other operating revenues in the quarter appreciated 20.4% to ¥2.27 trillion ($29.27 billion) driven by higher revenues from the company’s Automobile segment with the recovery from the impact of twin disaster in Japan in 2011, offset partially by unfavorable foreign currency translation effects.

Consolidated operating profit jumped 92.1% to ¥100.87 billion ($1.30 billion) from ¥52.51 billion a year ago. The increase was attributable to higher sales volume, favorable model mix and positive impact from cost reduction measures, offset partially by increased selling, general and administrative (SG&A) and research and development (R&D) expenses, and unfavorable foreign currency effects.

Honda downgraded its revenue and earnings guidance for fiscal 2013 due to a negative impact from increased SG&A expenses and R&D expenses, and unfavorable currency translation effect.

The company has projected revenues to improve 23.3% ¥9.80 trillion, operating profits to rise 124.8% to ¥520 billion, net profit to go up 77.3% to ¥375 billion and earnings per share of ¥208.07 for the year. This is compared with the prior outlook of a 29.6% increase in revenues to ¥10.30 trillion, 168% rise in operating profits to ¥620 billion, 122.2% increase in net profit to ¥470 billion and earnings per share of ¥260.78 for the year.

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